1. Field of the Invention
The present invention relates to a system and method for Point-Of-Sale (POS) check authorization. In addition, this system and method provides a merchant, who accepts a check as payment for goods and services, up-to-date customer demand deposit account (DDA) information to assist him in making the decision whether or not to accept the check.
2. Description of the Related Art
Checks have maintained a relatively constant volume for completing point of sale transactions. However, competing forms of payment, such as credit cards and debit (ATM) cards have siphoned off some of the most credit-worthy customers. Because of this development, the check writing population includes a higher percentage of less credit-worthy customers, making checks increasingly risky for merchants to accept. Consequently, check nonpayment, namely, when a legitimate check is drawn on an account that does not contain sufficient funds, has become more common. Losses related to nonpayment are projected to reach $95 Billion by the year 2005. Also of concern is check fraud, that is, when a check is altered, counterfeited, forged, or drawn on a closed account. Losses to financial institutions relating to check fraud have been estimated to be as high as $1.34 Billion. Merchants, rather than financial institutions, absorb the majority, well over 90%, of such losses.
Systems currently exist that provide some security for merchants wishing to accept checks as payment. For example, service providers such as Equifax, Telecheck and NPC maintain databases of customer and account information and offer check authorization services. Two general types of services are offered. These are check verification and check guarantee.
With a check verification service, when a merchant receives a check, he passes it through a check reader that transmits identifying information to the company providing verification services. The company uses a variety of tools to evaluate the risk of accepting the check and then transmits an accept or deny decision back to the merchant at the point of sale. The merchant still must make the decision whether or not he will accept the check. If a check is subsequently returned, the merchant can either try to collect it himself, or engage the collection arm of the verification company, generally for an additional fee. Such verification companies generally charge between $0.02 and $0.20 per check, or a flat monthly fee, for verification services. Verification is typically used by merchants with a high volume of low valued checks, such as grocery stores.
With a check guarantee service, as with check verification, the merchant passes the consumer""s check through a reader that transmits identifying information to the guarantee firm. Again, the firm evaluates the risk of the check and then transmits an accept or deny decision back to the merchant at the point of sale. However, with check guarantee, if an approved check is subsequently returned, the guarantee firm must reimburse the merchant for the full amount of the check. The guarantee firm would then take over responsibility for collection. The fee for guarantee services is typically 0.4% to 5% of the check""s value. Guarantee services are usually used by merchants who receive a low volume of high value checks, such as jewelry stores.
Merchants authorize checks using magnetic ink character recognition (MICR) reading devices linked to POS systems. Authorization is made over communication networks by the service provider vetting check information against experiential data bases. FIG. 12 shows the steps necessary to complete an authorized check transaction using prior art check authorization techniques.
As shown there, the transaction is initiated by a tender of the check at the point of sale. The authorization request consists of capturing the data on the check and sending the transaction request to the service provider, or acquirer. In making the authorization decision, the service provider vets the check information using resident databases and approves or declines the check. The decision is transmitted to the merchant. Thereafter, the transaction is completed after the merchant allows the purchase if the check is approved. Settlement is achieved by the merchant delivering the check to his bank. His bank processes the check in the normal manner, eventually presenting the check to the payor bank for payment. If the check is not good, and a check guarantee service was used by the merchant, the merchant delivers the dishonored check to the service provider.
Check authorization service providers make use of a multiplicity of information sources in making the authorization decision. Positive file databases are proprietary experiential databases that keep records of accounts that have passed good checks in the past. The databases are built through the experience gained by authorizers as they verify or guarantee the checks of their client base. As a result, the greater the volume of checks processed, the stronger the experiential database is likely to be.
Negative file databases are proprietary experiential databases of known xe2x80x9cbad checkxe2x80x9d offenders. Like the positive file databases, negative files are built through the experience gained by authorizers as they verify or guarantee the checks of their client base. Again, the greater the volume of checks processed, the stronger the experiential database is likely to be.
DDA status information is used to a limited extent by some check authorization service providers. This information is stored in databases external to the service providers and is maintained and updated by participating financial institutions. The positive files indicate which accounts may present problems by tagging them with cautionary codes, such as closed, closed-for-cause, NSF (non-sufficient funds), new account, and the like. However, the current services offered by providers possess limited DDA population coverage and incomplete information. Since only banks can access DDA information in real-time, the DDA information in the possession of authorization providers may not be up to date.
Check authorization service providers also use risk management systems and proprietary risk assessment tools developed internally by such firms. These are used to assess the risk of a given transaction based upon numerous variables including the results returned by negative file, positive file, and DDA status databases.
Systems have been proposed that eliminate the need for checks altogether. For example, U.S. Pat. No. 4,673,802 (Ohmae et al.) describes a central processing system having stored data relating to accounts of users. The purchase is approved or disapproved on the basis of the information stored on the computer, and the account is debited taking into account a period of indulgence from the date of the transaction.
U.S. Pat. No. 5,484,988 (Hills et al.) is directed to a point-of-sale system that reads customer information, for example from the customer""s check, credit card or through manual input, and subsequently, by means of an automated clearing house (ACH) network transaction, debits the customer""s account for the amount of the goods and services provided and credits the merchant""s account for the same amount. The system includes hardware to read customer information to verify that the customer has an appropriate balance to conduct the transaction from a central computer system holding information relating to various customers"" credit-worthiness. The transaction information is stored at the central computer for subsequent reconciliation via the ACH network, if the transaction is approved.
The systems discussed above have several drawbacks. First, those that rely on information stored in central databases by their very nature do not provide access to up-to-the-minute status regarding the customer""s account. A merchant who relies on such a system runs the risk that the customer, while generally credit-worthy, currently has insufficient funds in his account.
Moreover, many consumers prefer to use paper checks because they have become accustomed to using the returned checks for balancing their checkbooks and maintaining their household budgets. Thus, paperless systems, such as those proposed in the Hills and Ohmae patents, are perceived to be less that desirable, at least by some.
Further, the ACH network of the system disclosed in the Hills patent is a batch driven system and does not provide real-time access to the account of the customer or to current information regarding the account. Because of the delay involved in batch driven systems, there is no guarantee that the customer""s account will have sufficient funds by the time the ACH transaction debiting the funds has been processed.
Thus, the need exists to provide a system that allows merchants to continue to accept customers"" paper checks with the assurance that the check is drawn on a currently valid account then having sufficient funds to cover the transaction.
In consideration of the above drawbacks of the prior art, it is an object of the present invention to provide a system and method permitting a merchant at the point of sale to enter information relating to a customer""s check and transaction information into a point-of-sale terminal. In such a method and system, the entered information is transmitted to a merchant processor, which then initiates transmittal of an inquiry communication to the customer""s (payor) bank, preferably through an electronic funds transfer (EFT) switch. Optionally, some merchants may connect directly to banks and some merchant processors may connect directly to banks where there is a significant market presence of a few banks. Upon receipt of the inquiry communication, the bank accesses the demand deposit account (DDA) of the customer to determine if the DDA contains sufficient funds to cover the transaction, and if it does, and if other predetermined criteria are met, the bank debits the customer""s DDA in the amount of the transaction. The bank then transmits DDA information, including whether or not the DDA was debited, to the merchant processor, preferably by means of the EFT switch. The merchant processor can then make the authorization decision based upon the response of the bank and report the decision to the merchant.
In accordance with one aspect of the present invention, there is provided a point-of-sale check transaction authorization method, comprising: inputting into a point-of-sale terminal transaction information, including a transaction amount, and financial institution information from a check to be authorized; communicating the input transaction information and financial institution information to a merchant processor having logic means for making a check authorization determination; discriminating, from the financial institution information, whether or not the financial institution upon which the check was written is a participating financial institution; if it is discriminated that the financial institution is not a participating financial institution, making a check transaction authorization determination based upon experiential databases accessible by the merchant processor; if it is discriminated that the financial institution is a participating financial institution, performing the following steps: transmitting, by the merchant processor, an information request based upon the input transaction information and financial institution information to the financial institution upon which the check was written; verifying, by the financial institution upon which the check was written, whether an account associated with the financial institution information contains sufficient funds to cover the transaction, if sufficient funds are present and if other predetermined criteria are met, debiting the account associated with the financial institution in the amount of the transaction, and transmitting information relating to the whether the account has been debited to the merchant processor; if the financial institution has debited the account, the merchant processor communicating a transaction authorization to the merchant, and the merchant voiding the check and returning the check to the customer; and if the financial institution has not debited the account, the merchant processor making a transaction authorization determination based upon information other than the account information transmitted from the financial institution.
In accordance with another aspect of the present invention, there is provided a point-of-sale check transaction authorization system for authorizing a check that is presented to a merchant at the point of sale in payment for goods or services, the system comprising: an input unit operable to input information comprising: data from the check, including information as to a financial institution upon which the check was written, and transaction information, including an amount of the transaction; and a merchant processor operable to make an authorization decision. The merchant processor has: a communication unit operable to communicate with the financial institution; means for accessing information relating to a writer of the check from an experiential database; and logic means for making the authorization determination on the basis of: the input information and information from the accessed experiential database, in a case that the data from the check is not indicative that the financial institution upon which the check was written is a participating financial institution; or on the basis of the information received in a communication with the financial institution, in a case that the data from check is indicative that the financial institution upon which the check was written is a participating financial institution. The merchant processor is operable, by means of the communication unit, to: transmit to the participating financial institution upon which the check was written an information request based upon the input financial institution data from the check and the input transaction information; and receive account information from the participating financial institution, the account information relating to whether the account has sufficient funds to cover the transaction amount and whether the account has been debited by the participating financial institution, the merchant processor further being operable to: if the financial institution has debited the account: communicate a transaction authorization to the merchant, the merchant voiding the check and returning the check to the customer in response to the communication; and if the financial institution has not debited the account, making a transaction authorization determination based upon information other than the account information transmitted from the financial institution.
In accordance with yet another aspect of the present invention, there is provided a point-of-sale check transaction authorization apparatus for authorizing a check that is presented to a merchant at the point of sale in payment for goods or services, the apparatus comprising: an input unit operable to input information comprising: data from the check, including information as to a financial institution upon which the check was written, and transaction information, including an amount of the transaction; a merchant processor operable to make an authorization decision, said merchant processor including: a communication unit operable to communicate with the financial institution; means for accessing information relating to a writer of the check from an experiential database; and logic means for making the authorization determination on the basis of: (a) the input information and information from the accessed experiential database, in a case that the data from the check is not indicative that the financial institution upon which the check was written is a participating financial institution; or (b) on the basis of the information received in the communication with the participating financial institution, in a case that the data from check is indicative that the financial institution upon which the check was written is a participating financial institution. The merchant processor is operable, by means of the communication unit, to: transmit to the participating financial institution upon which the check was written an information request based upon the input financial institution data from the check and the input transaction information; and receive account information from the participating financial institution, the account information relating to whether the account has-sufficient funds to cover the transaction amount and whether the account has been debited by the participating financial institution, the merchant processor further being operable to: if the financial institution has debited the account: communicate a transaction authorization to the merchant, the merchant voiding the check and returning the check to the customer in response to the communication; and if the financial institution has not debited the account, making a transaction authorization determination based upon information other than the account information transmitted from the financial institution.